Economic policies in the UK 'will leave average pensioner household £1,318 worse off by 2014'

Economic policies currently running in the UK will leave Britain’s pensioner households worse off by an average of £1,318 each by April 2014, a report claimed today.

The respected economic think tank CEBR said that as fiscal and monetary policies hit older citizens' incomes and raise their cost of living, the UK's 8.7million pensioner households will be a total of £11.5billion out of pocket in less than two years' time.

Dr Ros Altmann, director general of Saga who commissioned the report, said that as pensioners' incomes fall, spending power is being sucked out of the economy and reducing the power of the 'grey pound' to create economic activity and jobs for younger people.

Worse off: Think tank CEBR said that UK pensioners will be a total of £11.5billion out of pocket in less than two years' time because of fiscal and monetary policies

The CEBR's findings also refuted the Bank of England’s argument that by saving borrowers £100million, low interest rates are having a positive impact on the economy.

Dr Altmann said that the benefits of low rates go mainly to heavily indebted younger people with large mortgages, who just use the windfall to reduce debt.

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There is thus little benefit to the economy, she added, whereas the income that is being taken away from pensioners - by low savings rates and plummeting annuity returns - would mostly have been spent and therefore provide a greater boost.

Economic policies are hitting pensioner household incomes, according to the CEBR

The CEBR report quoted ONS data that has
shown that while the under-30s saw their mortgage payments fall by
£21.60 a week between 2007 and 2010, those in the 50-64 age bracket had
gained just £1.50 a week.

Those aged 65-74 had actually seen their
payments go up by an average of £2.90, as many were forced to
remortgage when endowment policies failed to clear their loans.

Criticism: Ros Altmann of Saga said that the benefits of low rates go mainly to heavily indebted younger people with large mortgages

Dr Altmann also highlighted tax and benefit changes in the pipeline such as cuts in savings credit and the abolition of age related allowances, the so-called granny tax.

The change to age related allowances has affected 80 per cent of pensioners, with the newly retired the worst affected.

The full impact of such fiscal policy changes has not yet been felt by pensioners Dr Altmann said, with the findings predicting that by 2013/14 the average pensioner household would be £241 a year worse off.

She also showed that the coalition’s much-trumpeted 'triple lock' pledge to increase pensions by the higher of average earnings, the consumer price index or 2.5 per cent masked the fact that payments would have been greater under the previous system linking them to the retail price index (RPI) used by Labour.

This meant that the state pension would be £62 lower in 2013/14 for single pensioners and £82 lower for couples.

Dr Altmann also criticised an Institute for Fiscal Studies report in March which argued that pensioners had benefited from tax and benefit changes.

She said: 'The IFS report lulled MPs into a false sense of security that they have been lessening the financial pain of pensioners but this does not ring true when you talk to people at the sharp end of these policies.'

She said savers were paying the price of other people’s borrowing.
There are 12.85million pensioners (8.7million households), according to Saga, made up of 4.15million couples, 3.35 million single women and 1.2million single men.

How inflation hits pensioners hardest, according to saga

The report also showed that the full impact of fiscal policy changes had not yet been felt by pensioners, predicting that by 2013/14 the average pensioner household would be £241 a year worse off.

Dr Altmann was also keen to stress the devastating impact of quantitative easing (QE) on pensioners – highlighting that the persistent money-printing measures have left the poorest retirees with inflation of 26 per cent, according to ONS figures.

Those pensioners in income drawdown also felt the full force of QE the report highlighted, as they now need £150,000 at age 65 to secure the same income as they could get with £100,000 in 2009.